BC Provincial Budget – new rules on DTC eligibility

It’s is April 20 as I write this. Yesterday was federal budget day.  I’m in BC and today is our BC provincial budget day. I have to ask: is it irony? Or do you think that it’s purposeful that our province of BC would hold their budget on April 20 – International Weed Day? There is much I could write about yesterday’s federal budget. Instead, I will home in on some small fine print that very little mention has been made of, but that will have a massive impact on an estimated 45,000 disabled individuals. 

Effective retroactively (to the beginning of 2021) the requirements to be eligible for the Disability Tax Credit (DTC) have been loosened.

This comes as a welcome surprise to the many I’ve heard from who had previously had their DTC application denied. The adjustments revolve primarily around “mental functions of everyday life” and “life-sustaining therapy”.  Previously the definition of mental functions necessary for everyday life made it very difficult for some to be eligible. The new definition will make it much easier for many of those individuals. Similarly, by including more activities related to life-sustaining therapies (such as medically required recuperation after therapy), it will make it possible for more individuals to be DTC eligible.   

Life changing for some
In and of itself the DTC is only worth about $1,300 in annual tax savings – nothing to sneeze at, but not what I would call life changing. The bigger benefit is for those under the age of 49 eligible for a Registered Disability Savings Plan (RDSP). DTC eligibility is a requirement for RDSP eligibility, so loosening the DTC requirements is effectively loosening the RDSP requirements – and that can be life changing for some.

I’ve written about RDSPs in the past, so I won’t go into a lot of detail here, but here’s a quick summary. Eligible individuals (or friends and family) may put up to $200,000 into an RDSP account, which is intended to be treated like an RRSP – meant for later years. I won’t go into the restrictions (there are many), but I would break the benefits down into two major categories: free money and preferred treatment. 

Free money – up to $90,000 in government additions to the plan.
The first set of major benefits come in the form of government bonds and grants: bonds up to $1,000 annually (with a maximum of $20,000 total) based on income; and grants up to $3,500 annually (with a maximum of $70,000) based on annual contributions into the plan with the government matching 1:1, 2:1, or 3:1 (depending on amount contributed and on income). It’s all very complicated but trust me – it’s awesome, almost to the point of being too good to be true. 

Preferential treatment – tax deferral and minimal or no counting towards income for means tested programs 
The other major benefit that is often overlooked is that while the grant and bonds and growth are taxable when withdrawn, the income from them is not counted against any means tested programs – at least not here in BC. This varies a bit province by province, but all provinces (and territories) treat the income preferentially. 

Maximizing these benefits often requires planning. In my opinion, RDSPs are not a great place to try to “do it yourself”. I strongly urge you to seek professional help when setting the plans up.

If you’ve been denied your DTC application in the past, it is now time to reapply
At the end of the day – take the free lunch. If you’ve been denied your DTC application in the past, it is now time to reapply. Or if you know someone who has a disability, ask them if they are able to take advantage of an RDSP. If they stare back at you with a blank expression, if they look like you’ve just told them unicorns are for real, then encourage them to talk to someone to see if they might be able to set one up. You may be effectively putting $90,000 of free money in their pocket.

Sources: Federal Budget 2021

Arnold Machel, CFP® lives, works and worships in the White Rock/South Surrey area where he attends Gracepoint Community Church.  He is a Certified Financial Planner with IPC Investment Corporation and Visionvest Financial Planning & Services.  Questions and comments can be directed to him at dr.rrsp@visionvest.ca or through his website at www.visionvest.ca.  Please note that all comments are of a general nature and should not be relied upon as individual advice.  The views and opinions expressed in this commentary are those of Arnold Machel and may not necessarily reflect those of IPC Investment Corporation.   While every attempt is made to ensure accuracy, facts and figures are not guaranteed. 

Arnold is now accepting a limited number of invitations to speak for the 2021/22 calendar years.  If you are interested in having him speak to your congregation or other group (when gatherings are allowed to resume) regarding money matters, please contact us at admin@visionvest.ca or (604) 542-2818 with your preferred date and time.